Illumina Switches On

Let's look at a buy setup in Illumina (ILMN). First off, I like that the stock price is currently above the 200- and 50-day simple moving averages. I also like that we're seeing what looks like a symmetrical pullback. As long as the current decline terminates somewhere above the Sept. 3 low, I will look for buy triggers.

Now, there are two solid price-cluster decisions that show up above this low -- $78.93 to $79.71 and $77.41 to $78.38. For those who want to be a bit more aggressive, there is one more level above those zones, around $80.68. The price-cluster zones are mostly defined by taking many of the prior declines within the recent rally, and projecting 100% of those from the Sept. 16 high. These symmetry projections also overlapped some key Fibonacci price retracements.

Now, let's do a review of why we use a trigger before entering a trade. It's because we want to see price action that suggests that it's worth placing a bet against a particular price zone. After all, we don't know if one of the higher levels will hold up -- and, for Illumina, in particular, maybe it won't catch a bid until it gets closer to the $77-to-$78 area. It is also possible that a buy trigger will never occur above one of my key price decisions. If there is no trigger, I don't take the trade!

The trigger I typically use for a swing trade buy entry is twofold. I look for the eight-day exponential moving average to cross above the 34-day EMA, and for the stock to take out a prior swing high on a 30-minute chart. If I want to be more aggressive, I will use a 15-minute chart instead.

As you can see on the 30-minute chart above, Illumina has not yet triggered a buy entry -- so be patient and stalk this one in the coming sessions. If there is reason to step in on the buy side, remember to place a stop below either the low made prior to the buy trigger firing off, or under the price cluster zone. The potential for this trade would be for new highs above the Sept. 16 high.